By Monica Barton (London Partner at Winston & Strawn) and Delphine Zhuang (London Associate at Winston & Strawn)

Summary

On 13 January 2021, the Court of Appeal of Toulouse (the Court) rendered its decision on the BVA case. It gra nted XPage ownership of BVA, overturning the French Tribunal’s judgment who had selected Alcentra’s bid back in September 2020. The Court eventually sided with the public prosecutor’s arguments that a foreign (i.e. non-French) fund might dismantle the company’s workforce, despite Alcentra’s reassurances to the contrary.

Background

Founded in 1970, BVA specialises in market research for public and private clients, with methodologies based on data science and behavioural science. In 2018, BVA generated a turnover of EUR 165 million, which increased to EUR 200 million in 2019, to decrease by 40%, as a result of the Covid pandemic-related lockdown in 2020. It employs over 900 employees worldwide.

Further to these liquidity issues in Q1 2020, tensions escalated between the management of BVA, Naxicap (the majority shareholder) and Alcentra European Direct Lending, the English fund subsidiary of the American BNY Mellon (Alcentra) being the principal creditor of the BVA group with EUR 140 million of outstanding unitranche indebtedness.

BVA went in a state of “cessation of payments” (cessation des paiements) on 14 May 2020.

As tensions did not subside, the management allegedly threatened to place the company in receivership (redressement judiciaire). In particular, Pascal Gaudin, CEO of BVA, accused Alcentra of stifling the ability of the company to obtain liquidity from alternative sources by refusing the benefit of a EUR 25 million State-backed Covid loans (Prêts garantis par l’Etat – PGE), which would have given additional cash to the group, thus forcing BVA to go into an insolvency process.  Furthermore, whilst a receivership (and the Covid moratorium) restricted Alcentra’s enforcement options in France, Alcentra exercised its share pledge over the US subsidiary (against an acceleration of EUR 50 million) and took control of it in July 2020.  The shareholders disputed the enforcement value and contended the US subsidiary was worth between EUR 80-100 million.

As a result, BVA filed for receivership on 5 June 2020 in the context of which offers were made for a distressed sale of the group.

The Tribunal of Toulouse invited offers in the sale process which would contain a new money tranche. There were 4 bidders: Naxicap and the BVA management (regrouped in a consortium named XPage); Alcentra; Groupe Dentressangle’s IFOP (another market research company), and Christophe Ginisty, an entrepreneur from Toulouse.

On 15 September 2020, the Tribunal of Toulouse accepted Alcentra’s offer.

Unexpectedly, the public prosecutor appealed the decision of the Tribunal of Toulouse, and on 13 January 2021, the Court of appeal of Toulouse eventually ruled in favour of XPage, allowing them to acquire the French group.

What made the XPage’s offer a better offer?

The following offers were presented before the Tribunal of Toulouse:

1. The Ginisty offer was EUR 12 million plus EUR 10,4 million for future liabilities (“charges augmentatives”), amounting to EUR 22,4 million in total (no information was published in respect of job retention);
2. IFOP’s offer was EUR 12 million plus EUR 16,3 million for future liabilities, amounting to EUR 28,3 million in total (similarly, no information was provided in respect of job retention);
3. Xpage offered EUR 18 million plus EUR 9,4 million for future liabilities, amounting to EUR 27,4 million in total. In addition, XPage planned to maintain all jobs for employees for 36 businesses in France for 3 years, without conditions. The Social and Economic Committee (constituted of the employees of the group – the CSE), along with the administrators and judicial representatives announced their support of the XPage offer.
4. Alcentra offered EUR 12,5 million plus EUR 16,7 million for future liabilities, amounting to EUR 29,2 million. Alcentra also offered to maintain jobs for the employees of 4 BVA entities in France that were going through insolvency for at least 2 years, subject to economic performance. It also agreed not to close down sites, to pay 2019 bonuses that had not been paid, go forward with salary raises that had been planned since 2019, and boost training, among other measures [source: Debtwire].

On 15 September 2020, The Tribunal of Toulouse accepted Alcentra’s offer, on the basis that it was the most effective to reassure the continuity of the Group as a going concern, to maintain its employees and address its indebtedness.

Appeal from the public prosecutor –  the public prosecutor appealed against the decision of the Tribunal of Toulouse to review in more in-depth fashion the offers on the table for the takeover and, especially “to further analyse and understand what financial consequences the four offers entail for the business and what their impact on the workforce and economic stakes involved will be.” Only Alcentra and XPage’ offers were presented in appeal.

Social cohesion, “BVA identity” and employees’ support – the Court of appeal adopted the public prosecutor’s arguments and was especially sensitive to the statements of the representative of the employees of BVA, Ludovic Briey, who expressed concerns that Alcentra would want to recover its debt rather than relaunch the company.

Contrary to the Tribunal of Toulouse’s decision, the Court considered that Alcentra’s offer was not the best given the shorter commitment to maintaining employments and the more limited scope, compared to the XPage commitment to maintain all employees without conditions for a 3-year period).

Furthermore, the Court focused on Alcentra’s apparent lack of knowledge of the profession and the lack of expertise in the sector and emphasized the probability of relocation of company site, plus a risk of dilution of the “BVA identity”, by the deployment of digitalisation techniques specific to the United States but little adapted to the practices of BVA.  In the Court’s opinion, the takeover from a foreign-owned fund like Alcentra would have resulted in important structural changes for the company, in addition to the likelihood that Alcentra was planning to reorganise the group thoroughly, to the benefit of foreign stakes. Indeed, the employees noted that Alcentra also planned to appoint an executive to supervise “transformation” in the group and would be in charge of optimising the costs”, the CSE reported.

Whereas, according to the Court, Xpage (who benefits from the financial support of Naxicap Partners, a French player in private equity through the BPCE Group) presented a better offer in terms of employment but also in respect of the price of the sale of assets and is therefore more favorable to the disinterestedness of creditors, regardless of the fact that Alcentra intends not to declare its bond debt due. This statement is surprising given that Alcentra’s offer was financially the highest bid.

Key takeaways

In the pandemic period, takeover bids should focus on job retention and sustainability of the company’s activities – French law lists the following three criteria which a takeover bid should fulfill: (i) employee job retention, (ii) sustainability of the company’s activities and (iii) settlement of liabilities – which gives some leeway for the court to appreciate which offer is the best for the company’s interest and indeed, on the same legal criteria, the Court’s decision is reaching a complete different outcome than the Tribunal of Toulouse’s. The Court seemed to weigh the balance in favour of employee job retention and sustainability of the company’s activities rather than on settlement of liabilities, when Alcentra’s offer was financially the highest bid and Alcentra is the main creditor of the group.

The management took advantage of the French Covid-related legislation – Ordinance No. 2020-596 of 20 May 2020 makes it easier for management teams of companies in receivership to buy their business back until 31 December 2020: if, in the Court’s determination, the takeover bid by the management is likely to save most jobs, then the company may be sold for a smaller consideration, to the detriment of existing lenders in terms of debt recovery. After 31 December 2020, the general rule is back to pre-Covid legislation, i.e., the management teams of a company under an insolvency proceeding are prohibited from buying the business save for very limited circumstances (e.g. if requested by the public prosecutor or in the agricultural sector).

The management reportedly threatened Alcentra to open a receivership to bypass its rights as main secured creditor – it was reported that the management pressured Alcentra and threatened to open a receivership proceeding if negotiations failed. Even though BVA was already in a state of “cessation des paiements” since 15 May 2020, French Covid-related legislation have relaxed the rules for declaring insolvency* [footnote: the general rule being that a company has the obligation to request the opening of a receivership (or a liquidation) if it has been in cessation des paiements for more than 45 days (the directors of such company being liable in case of failure)] which concretely means that the company could have requested the opening of a receivership until 7 October 2020 (Ordinance No. 2020-341 of 27 March 2020). This can only prove one thing: the management did pressure the parties to accept compromises and the behavior of the various protagonists hasten the opening of the receivership (the effect of which is, amongst other things, to trigger an automatic stay of proceedings against the company so that the creditors cannot enforce their rights relating to debts that arose before the opening of the receivership).

The decision will dissuade buyouts by “foreign” funds – this decision is a warning to non-French funds attempting to take control of companies weakened by the Covid-19 crisis. The Court reportedly reaffirmed the risks associated with those “who have an interest in ensuring the prevalence of financial logic and social or fiscal optimization to the detriment of maintaining employment”.

This may dissuade loan-to-own investments from foreign-owned funds, and existing secured creditors of companies facing financial difficulties may be tempted to enforce their security over shares or other assets before the opening of an insolvency proceeding in order to take control of the company out of a court-driven process and preserve the prospects of debt recovery. This could lead to a race against time between, on one hand, the creditors rushing to enforce their security upon the occurrence of an event of default, despite the risk that such enforcement (and the necessary acceleration) would trigger an insolvency and, on the other hand, the company seeking to file for a conciliation proceeding, a safeguard proceeding (sauvegarde) or even a receivership (redressement) to prevent security enforcement.

Finally, there was criticism as to the weakness in the arguments of the Court to prefer the XPage’s offer over Alcentra’s. This leads to comments as to the political connotation in the Court’s decision, consistent with the French government’s protectionist approach to retain French ownership in sensitive sectors:

• The group specialises in data collection for polls and surveys and this sector is particularly sensitive since the Cambridge Analytica scandal of 2014-2015. Political parties and election candidates are regular clients of research institutes such as BVA, Opinion Way, Ifop. Despite efforts to create a French national champion in terms of data collection in order to control the storage and process of data, data of citizens or consumers is predominantly stored on foreign servers.
• The impact of Brexit – French law strengthened its foreign investment control regime over “strategic sectors” in 2019 and 2020 for non-EU/EEA investors, which now includes English-based companies and funds as from 1 January 2021 further to the implementation of Brexit and will render cross-border investments from the UK in the UE countries more intricate. The scope of “strategic sectors” has been extended to activities in relation to (i) political and general information press services, (ii) agricultural products contributing to national food security objectives, (iii) quantum technologies, (iv) energy storage and (v) biotechnologies. It’s unlikely the Court did not take this new political landscape into consideration in its decision. On a separate but related matter, at the same time, on 13 January 2021, French Minister of Economy and Finance Bruno Le Maire declared to object “at first sight” to the possible takeover deal between Carrefour and Canadian Couche-Tard under the guise of “food sovereignty”.